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(a) Strata Developments – The Basics

(i) General

Licensees must exercise reasonable care and skill in the performance of their duties. They should take special precautions in the sale of any strata property to ensure that they are not involved in any misrepresentation, either by omission or by incorrect statements.

In the sale of strata properties, exercising reasonable skill and care includes the obligation to ascertain and provide buyers with current information respecting strata corporation bylaws, rules, finances, and restrictions or prohibitions relating to the use of the strata lot, and other matters that may affect the strata lot’s value or use. The Strata Property Act assists in this process by providing a mechanism for access to a great deal of information concerning a strata corporation. It requires that much of this information be certified by the strata corporation. While the process may be time consuming and complex, it should be followed rigorously.

These guidelines are intended to assist licensees in the performance of their duties. They explain various situations licensees may encounter and must be able to handle on behalf of clients.

(ii) Governing Legislation

The Strata Property Act, as amended by the Strata Property Amendment Act and including the Strata Property Regulation (the ‘‘Regulation’’), came into force July 1, 2000. The Strata Property Act replaced the Condominium Act. Since July 1, 2000, the provincial government has further amended both the Strata Property Act and the Regulation. Licensees can obtain a consolidated version of the Strata Property Act, together with the Regulation, on the Provincial Government’s Strata Property website www.gov.bc.ca/strata. This site contains helpful advice on numerous matters relating to the operation of the Strata Property Act and other pertinent information affecting strata corporations. A consolidated version of the Strata Property Act and the Regulation can also be ordered for a fee from BC Laws at www.bclaws.ca.

Licensees should ensure they reference the most current version of the Strata Property Act and Regulation as amendments occur regularly.

(iii) Strata Governance and Compliance

The Strata Property Act regulates the creation and operation of strata corporations. A strata corporation is a unique form of real estate development that permits multi-unit developments, each with an individual title, to be created on a single parcel of land. Strata plans may be filed to create multi-unit developments ranging in size from two to hundreds of units. The units may be for residential, commercial, industrial, or recreational use or some combination of these various uses. When a strata plan is filed in the Land Title Office, a strata corporation is created. Thus, a two unit duplex may be a strata corporation.

The Strata Property Act and Regulation govern the operation of all strata corporations created in British Columbia. Some of the operational requirements are that every strata corporation must have bylaws, it must hold annual general meetings and keep minutes of the meetings, it must retain records relating to the strata corporation, the owners must approve a budget annually and the strata corporation must maintain operating and contingency reserve funds.

Regardless of the size or way in which the units are to be used, the Strata Property Act and the Regulation apply to govern the strata corporation’s operation. Although provincial legislation applies to all strata corporations, there is no government body that enforces the legislation to ensure that strata corporations comply with the legislative requirements. As a result, some strata corporations will comply diligently with the governance requirements, while others will consider the legislation as a noncompulsory guide and others, particularly smaller strata corporations, may ignore the legislative requirements completely.

A strata corporation that retains a third party management company to assist in the management is more likely to comply with the legislative requirements, however there are many self-managed strata corporations that are well informed regarding the requirements of the legislation and are diligent in their efforts to comply. Small strata corporations tend to be less familiar with the requirements of the legislation, and in some cases may deny that the legislative provisions are applicable. It is not uncommon, for example, for duplex owners to deny that they are part of a strata corporation and thus fail to hold general meetings, approve budgets and maintain operating and contingency reserve funds. Some owners even believe that the legislation exempts smaller strata corporations from the need to comply with the legislation. Others believe that the Strata Property Act does not apply to strata developments used for commercial or industrial purposes. Such beliefs are incorrect. Neither the Strata Property Act nor the Regulation contains exemptions from the governance requirements for any strata corporation.

Some licensees refer to strata corporations that do not hold meetings, or maintain the necessary operating and contingency reserve funds as “non-compliant.” In such strata corporations, meeting minutes, budgets, and/or financial statements may not exist. To ensure that sellers will not be held liable by buyers for the strata corporation’s failure to comply with the legislation and will not be liable to produce documentation that does not exist, listing licensees should insure that any subject clauses requiring the production of documents (other than the request for insurance documents which is discussed below) are deleted. Additionally, listing licensees may wish to include the following clause in the Contract of Purchase and Sale when selling these properties but care must be taken to ensure the strata corporation is “non-compliant” prior to using the following clauses or some variation thereof.

Properties without a Strata Council Clause

The Buyer acknowledges that this strata corporation has not been run in compliance with the Strata Property Act and, in particular, there is no active strata council, there have been no strata meetings, there is no budget, no strata fees have been collected, and there is no operating or contingency reserve fund or financial records.

In such cases, buyer’s agents should recommend that buyers obtain legal advice before becoming committed to buy and may wish to include the following clause making the contract subject to obtaining legal advice.

Subject to Legal Advice

Subject to the (select either Buyer or Seller) obtaining legal advice satisfactory to the Buyer or Seller concerning (select easement, builders’ lien, financing or define applicable issue) _________ by (date).

However, notwithstanding general non-compliance by the strata corporation with the legislative requirements, a buyer’s agent should obtain a copy of the strata plan and related schedules (if any) from the land title office and the agent should insist on obtaining a copy of the strata corporation insurance documents. The Strata Property Act requires every strata corporation to maintain property insurance on the buildings on a strata plan and to maintain liability insurance. This means that the insurance policy should be in the strata corporation’s name, i.e., The Owners Strata Plan (alpha/numeric sequence identifying the strata corporation). Owners in smaller strata corporations and particularly duplex owners may believe that obtaining personal insurance is sufficient; however, such insurance does not meet the requirements of the Strata Property Act and may mean that the property is NOT insured.

(iv) Types of Strata Plans

The Strata Property Act permits either building strata plans or bare land strata plans. The floors, walls and ceilings of the unit define the boundaries of strata lots in a building strata plan, which is the most common form of strata plan. Unless something different is shown on the strata plan, the boundary of a building strata lot is midway between the surface of the structural portion of the wall, floor, or ceiling that faces the strata lot and the surface of the structural portion of the wall, floor or ceiling that faces the other strata lot, the common property or the other parcel of land. In other words, an owner’s strata lot extends to the center of the structural portion of walls, floors and ceilings.

In a bare land strata development, the boundaries of the strata lot are defined on the horizontal plane by reference to survey markers. In other words, the strata lot is the land. A bare land strata lot appears similar to a lot in a typical single family subdivision; however, the bare land strata lot is part of a strata corporation whereas the lot in a non-strata subdivision is not legally connected to any other lot.

(v) Forms of Ownership

Strata lots may be owned in fee simple or by leasehold where they are created on leased land. A review of the strata lot’s title will reveal whether the development is a freehold or leasehold strata development.

In the majority of strata developments, the developer owns the land being developed in fee simple. After completing the building, or the services if the development is a bare land development, a strata plan is prepared and filed in the Land Title Office. A title is created for each strata lot and the developer is shown as the registered owner in fee simple of each strata lot. Each purchaser acquires a fee simple title to the strata lot purchased. Such developments are referred to as freehold strata developments.

In some cases however, the developer does not own the land being developed but instead wishes to file a strata plan over land that the developer has leased. Only land that has been leased from a public authority that is identified in the Regulation may be subdivided by the filing of a strata plan. Following are the public authorities identified in the Regulation:

Government of British Columbia

Government of Canada;

a municipality;

a regional district;

a Nisga’a Village or the Nisga’a Nation;

a university as defined in the University Act;

the Sechelt Indian Band established under section 5(1) of the Sechelt Indian Band Self Government Act (Canada);

the Provincial Rental Housing Cooperation; and

a board as defined in section 1 of the School Act.

The owner of the land is referred to as the leasehold landlord and the developer is the leasehold tenant. The developer leases the land under a document called a ground lease (sometimes called a head lease). The lease is usually for 50 years or more. After construction of the building, a strata plan is prepared and filed in the Land Title Office. The strata plan is subject to the ground lease. Such a strata plan is referred to as a leasehold strata plan. The Land Title Office creates a fee simple title for each strata lot in the name of the leasehold landlord. The ground lease is then converted to a lease of each strata lot. The developer, as leasehold tenant, is the tenant of each strata lot. The developer sells the developer’s interest as leasehold tenant to a buyer. The buyer obtains the interest of a tenant for the remaining term of the ground lease. The term of the lease diminishes each year. The buyer effectively takes an assignment of the developer’s interest as tenant.

Licensees must obtain a copy of the ground lease/head lease in order to identify the remaining term of the lease and to discover whether the ground lease/head lease is prepaid or whether the lease requires periodic payments.

Listing licensees must identify whether the development is a freehold or a leasehold strata development in order to properly identify the interest being offered for sale and in order to accurately value the strata lot. In all cases where a buyer is considering purchasing a leasehold strata lot, the buyer’s agents should recommend that a buyer obtain legal advice with respect to the terms of the lease and the implications of buying a leasehold strata lot.

(vi) Designation of Property on a Strata Plan

Regardless whether the strata plan is a building strata plan or a bare land strata plan, the strata plan will contain two designations of property, namely strata lots and common property.

The strata lot is identified on the strata plan and, if it is building strata lot, it may include balconies, patios, decks, garages, and in rare cases parking spaces or storage lockers. The strata lot on a bare land strata plan will appear as a plot of land.

Common property is defined, in part, as that part of the land or buildings shown on a strata plan that is not part of a strata lot. In other words, everything that is not part of a strata lot is, by definition, common property.

Every owner owns their strata lot (or owns the leasehold interest) and all owners also own an interest in the common property as tenants in common. Even though every owner can claim an ownership interest in the common property, the owner’s ability to use the common property may be restricted by bylaws, lease arrangements, or other agreements entered into by the developer or strata council. Licensees should not make assumptions about a purchaser’s ability to use common property and should confirm the use of common property with the strata council. Specifically, the use of parking and storage lockers is discussed more fully below.

The Strata Property Act permits common property to be designated on the strata plan for the exclusive use of an owner or multiple owners. Common property designated in this manner is referred to as limited common property. If property is designated as limited common property, although it continues to be owned by all owners within the strata corporation as tenants in common, it may be used exclusively by the owner whose strata lot is identified on the strata plan as being entitled to use the limited common property.

(vii) Strata Corporation Finances

(1) Operating Fund, Contingency Reserve Fund and Special Levy

Every strata corporation is required to have two funds, namely an operating fund and a contingency reserve fund. The operating fund is used to pay for common expenses that occur annually or more often than annually. The contingency reserve fund is used for the common expenses that occur less often than annually or that do not usually occur.

A strata corporation is required to approve a budget at each annual general meeting. The budget sets out the annual operating expenses for the strata corporation and will typically include expenses for insurance, utilities, service contracts such as janitorial, elevator servicing, garbage removal, and repair and maintenance. The budget is approved by a majority vote of the owners at the annual general meeting. Once approved, the operating expenses as set out in the budget are allocated to all owners in proportion to the unit entitlement of each owner’s strata lot relative to the total unit entitlement of all strata lots in the strata corporation, unless a different formula has been approved by unanimous vote. The contribution by the owners to the budgeted expenses forms a portion of the strata fees paid by each owner. The portion required to be paid to fund the budgeted expenses is deposited into the operating fund.

The budget permits the strata council, on behalf of the strata corporation, to spend the money in the operating fund, on those expenses that have been set out in the budget. There is very limited authority in the Strata Property Act or the strata corporation’s bylaws for spending that has not been authorized by the budget.

Every strata corporation is also required to maintain a contingency reserve fund (the “CRF”). If the amount in the CRF is less than 25% of the total contribution to the operating fund in the prior fiscal year, the strata corporation must contribute the lesser of 10% of the contribution to the operating fund for the current year or an amount that will bring the CRF to 25% of the contribution to the operating fund for the current year. Once the CRF reaches an amount equal to or more than 25% of the total amount budgeted for the contribution to the operating fund for the last fiscal year, additional contributions are determined by the budget process at each year's annual general meeting. In other words, the amount to be contributed to the CRF, once the amount in the CRF reaches an amount equal to or more than 25% of the previous fiscal years contribution to the operating fund, is determined as part of the budget process which is approved by a majority vote. The contribution to the CRF, as set out in the budget is allocated to all owners in proportion to the unit entitlement of each owner’s strata lot relative to the total unit entitlement of all strata lots in the strata corporation. The amount determined by the budget to be deposited to the CRF is included in the strata fees paid by each owner and is transferred from the operating fund to the CRF. Except in limited circumstances, funds may only be withdrawn from the CRF by means of a ¾ vote of the owners at a general meeting.

The Strata Property Act permits strata corporations to also raise money by special levy. A special levy is sometimes referred to as a special assessment, although the term special levy and not special assessment is used in the Strata Property Act. A special levy may be used to raise funds for expenses that occur annually or less often than annually, however, most strata corporations raise funds by special levy for those expenses that occur less often than annually. Often funds are raised by special levy to pay for all or part of a major repair or refurbishment when there are funds in the CRF are insufficient to pay for the work. Each owner's contribution to a special levy is usually in proportion to the unit entitlement of the owner's strata lot relative to the total unit entitlement of all strata lots in the strata corporation. Unless the special levy is to be allocated other than in proportion to the unit entitlement of a strata lot, the special levy must be approved by a 3/4 vote of the owners at a general meeting.

(2) Expense Allocation

The general rule contained in the Strata Property Act regarding the allocation of expenses is that all owners must contribute to all expenses in proportion to the unit entitlement of the owner’s strata lot relative to the total unit entitlement of all strata lots in the strata corporation.

The Strata Property Act or the Regulation contains limited exceptions to the general rule. If certain conditions are met, some expenses may be allocated to fewer than all owners. In other words, some owners may not be required to contribute to the expense. In addition, the Strata Property Act permits the owners to allocate costs in a manner other than on the basis of unit entitlement if the owners have first approved the new formula by unanimous vote.

(i) Limited Common Property

The Regulation permits operating expenses that relate to and benefit limited common property to be allocated to the owners of the strata lots entitled to use the limited common property. The exception is restricted to only operating expenses (those expenses that occur annually or more often than annually). The operating expenses relating to the limited common property must be shared by the owners entitled to use the limited common property on the basis of unit entitlement unless a different formula was approved. If a strata corporation intends to allocate expenses relating to limited common property to a limited number of owners, a separate column should be created in the strata corporation’s budget to identify the expenses. Thus, a review of the strata corporation's budget should identify the expenses that are allocated to only a limited number of owners. However, generally speaking, there are very few operating expenses related to limited common property that are of significance. As a consequence, few strata corporations take advantage of this exception.

(ii) Type of Strata Lot

If a strata corporation has identified “types” of strata lots in a bylaw, the Regulation permits the strata corporation to allocate operating costs that relate to and benefit only that type of strata lot to the owners of those strata lots. As with the expenses related to limited common property, the exception is restricted to only operating expenses. The expenses must be allocated among the owners of that type of strata lot on the basis of unit entitlement unless a different formula was approved. The Strata Property Act does not define what constitutes a “type" of strata lot. However, an example commonly used is that of an apartment style strata complex in which only certain strata lot have a gas fireplace. If the bylaws identify strata lots with gas fireplaces as a type of strata lot, the operating costs related to the gas fireplaces can be allocated to the owners of such strata lots. The annual fireplace inspection, if the strata corporation carries it out, would be one operating cost that could be allocated to such owners. Additionally, if the gas expense only related to the fireplaces, the gas expense could also be allocated to the owners of the strata lots with gas fireplaces. A further example of different types of strata lots may be residential/commercial strata lots, or apartment/townhouse strata lots.

A review of the strata corporation’s budget should identify any expenses that are allocated on the basis of type of strata lot. Additionally, a buyer’s agent should review the strata corporation’s bylaws closely to determine if the bylaws contain a bylaw amendment that identifies types of strata lots. If the bylaws have been amended to identify types of strata lots, further enquiries should be made to identify all operating expenses that will be are allocated to the type of strata lots that includes the strata lot that is listed for sale.

(iii) Strata Lot

Strata corporations that have taken on, by bylaw, responsibility for the repair and maintenance of specified portions of some but not all strata lots may allocate contributions to the operating fund or a special levy only to the owners of strata lots benefiting from the repair. The contribution to the operating fund or the special levy must be by unit entitlement unless a different formula was approved. A review of the strata corporation’s budget should identify operating expenses allocated to only certain strata lots. A review of any special levy resolutions should clearly indicate whether the levy is to be allocated to only certain strata lots.

(iv) Sections

In addition to the exceptions identified in the Regulation, the Strata Property Act permits a strata corporation to create sections. Owners within a section may incur expenses that are solely related to the strata lots in the section. Expenses incurred by a section are allocated only to the owners of strata lots within the section. All other owners are not required to contribute to the expense. Expenses allocated to strata lots in a section must be allocated on the basis of unit entitlement unless the owners within the section have approved a new formula by unanimous vote as discussed below. See section (viii) for an explanation of sections.

(v) Different Formula

The Strata Property Act also permits an expense to be allocated other than on the basis of unit entitlement. Section 100 permits the owners to allocate a contribution to the operating fund or the CRF by one or more different formulas if the formula is first approved by a unanimous vote of the owners. Additionally, section 108 of the Strata Property Act permits a special levy to be allocated other than on the basis of unit entitlement if the resolution authorizing the special levy is approved by a unanimous vote. A unanimous vote is defined in the Strata Property Act as “a vote in favour of a resolution by all the votes of all the eligible voters.”

(viii) Strata Corporations with Sections

The Strata Property Act permits “sections” to be created for the purpose of representing the different interests of:

owners of nonresidential strata lots, if they use their strata lots for significantly different purposes, or

owners of different types of residential strata lots.

The bylaws of a strata corporation identify whether sections have been created. Each section is a separate legal entity and has the same powers and duties as the strata corporation with respect to matters that relate solely to the section. Sections are often referred to as mini strata corporations.

If the section and strata corporation are in compliance with the Strata Property Act, the section and the strata corporation will each have its own minutes of meetings, budget, strata fees, operating and contingency reserve funds and the section may even have its own bylaws.

When listing a strata lot that is part of a section the listing licensee must determine whether the section has maintained separate documents, and if so, must advise prospective purchasers of this fact. Additionally, the listing licensee may be required to obtain a separate Form B from the section executive in addition to obtaining the Form B from the strata corporation. The Form B is discussed more fully below. If a strata lot is part of a section, a buyer’s agent should ensure that they request copies of both strata corporation documents and section documents.

**Alert**

For the purposes of the following text, when referring to a strata corporation, a licensee should also be aware that they may also require information about the section in which the strata lot is located, if sections have been created.

(ix) Phased Strata Developments

A developer who wants to build a large number of strata lots but does not wish to build all of them at one time can deposit the strata plan in phases over a period of time. Licensees who engage in the sale of strata properties must be aware of the legal meaning and implications of phased developments and what impact this may have on their client purchasers.

When the strata plan for the first phase is deposited, the strata corporation is created. The developer will then proceed to develop the next phase, and, once completed, will file the strata plan for that phase. The strata plan is assigned the same strata plan number as the first phase and the owners in that phase become part of the original strata corporation.

Before a developer can build a development in phases, the developer must prepare a Form P, which is approved by an approving officer and registered against the land to be developed in phases. The Form P sets out the information relevant to the phased development. The Form P contains a schedule of construction, the number of phases and the number of strata lots to be constructed in each phase, the sizes and unit entitlement of the strata lots and the common facilities to be built. The developer is permitted to amend the Form P and can delay the completion of the future phases as well as amend the number of phases, the number of strata lots to be constructed, and the sizes of the units, which impacts the unit entitlement to be assigned to those strata lots. Additionally, developers can elect not to proceed with future phases. Buyers purchasing in early phases of a development should be advised that there can be no assurance that the future development will proceed as planned, or at all and should be advised to obtain legal advice on the implications of buying into a phased strata development.

Buyers of units in subsequent phases should be advised that once they become a member of the strata corporation, they become liable for the expenses that are incurred in any phase of the strata development. Where a phased development has been constructed over a period of time that spans the introduction of the Homeowner Protection Act, strata lots within that phased strata plan may be affected by a variety of warranties. Even if the earlier phases have adequate warranties, buyers in later phases will still be required to contribute to the ongoing repair and maintenance of the earlier phases.

When writing offers for units in new phases of an existing strata corporation, licensees should include the usual new construction clauses as well as clauses that are normally used for resale units. This would include clauses related to receiving the Form B Information Certificate, meeting minutes from all meetings during the past two years (minimum), as well as the other critical documents listed in the ‘‘Additional Strata Corporation Documents’’ section. It is important to note that not all of the information identified on a Form B will be applicable to the purchase of a brand new or preconstruction phased strata unit. However, the Form B remains of material importance because, among other things, the liabilities, contingency reserves and any pending litigation or pending or passed resolutions of the strata corporation, of which the new phase is a part, are disclosed on the form.

Selling strata lots in a phased development, whether the strata lot is in the first phase or a subsequent phase, involves a number of complex issues. The Council recommends that, when assisting buyers with the purchase of a strata lot within a phased strata plan, licensees should advise buyers to seek legal advice.

(x) Strata Developments in Air Space Parcels

For More Information

The owner of a parcel of land owns not only the surface of the land, but also what exists above and below the surface. The land together with the air space above the land can be subdivided to create separate parcels of land (referred to as the air space parcel(s) and the remainder parcel). Although there will be only one remainder parcel, the subdivision may result in multiple air space parcels. The relationship among the various parcels will be governed by one or more air space parcel agreements. Each of the air space parcels and the remainder parcel may be further subdivided by the filing of a strata plan.

As subdivisions creating air space parcels are occurring with greater frequency, the possibility that a strata development exists within an air space plan is increasing. Licensees should therefore be familiar with the concept of air space plans and be able to advise buyers of the existence of the air space parcel agreement.

Although there are likely many reasons why a developer may choose to develop a parcel of land as an air space parcel development, one of the main reasons is the independent operation of each parcel. Other than the need to interact and cooperate with the owners of the other parcels regarding shared costs and other matters addressed in the air space parcel agreement, decisions regarding the operation of each parcel can be made without regard to the other parcels. A simple example of an air space parcel development is the subdivision of a high rise building into a commercial parcel and a residential parcel. Each parcel is subdivided by its own strata plan. The two strata corporations are separate entities and operate independently from each other. Each strata corporation will have its own bylaws, budget and contingency reserve fund. Each strata corporation will be required to contribute to the shared costs to repair and maintain the structure, elevator, building exterior, roof, and various mechanical and systems that the two parcels share.

Because an air space parcel development is divided into a number of different parcels, it is not necessarily possible to visually identify what physical areas are part of each parcel without reviewing the subdivision plans and the strata plans. For example, the lobby of a building may not be part of the residential strata development located above the lobby. The lobby may be part of another parcel and the residential owners may be permitted to access the lobby to enter the elevator as a consequence of an easement. Because the lobby is not the common property of the residential strata corporation, the residential owners will likely not have any input in how the lobby is decorated or maintained. Some buyers may find such restrictions surprising, and in some cases frustrating.

Although each strata corporation may operate independently of the other, each strata corporation must include in its budget the additional shared costs as required by the air space parcel agreement(s). A review of a strata corporation’s budget should identify the contribution to shared costs that the strata corporation must make and any revenue that the strata corporation is expected to receive from the other parcel(s).

Whether a strata corporation is part of an air space plan can be determined by reviewing the first page of the strata plan for the strata corporation. The description of the land being subdivided, which is set out on the top left corner of the strata plan, will indicate the existence of a subdivision plan. For example:

Buyer’s agents should review the strata plan and advise buyers if the strata corporation is part of an air space plan. Being part of an air space plan may have implications in respect of the use and appearance of certain areas of the development. Additionally, being part of an air space plan will have cost implications for the strata corporation. As air space parcel agreements are often complex, buyer’s agents should recommend that the buyer obtain legal advice regarding the implications of the air space parcel agreement.